How to save for that all-important 10% equity

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Hausples.com.pg : http://hausples.com.pg/residential-real-estate/house-for-sale/edai-town/1740729/

Potential homeowners will welcome the news that BSP now offers a more affordable home loan product.  With interest rates at 4% and a maximum repayment term of 40 years, it is definitely something potential homeowners should take a closer look at.

Even more favourable is the 10% equity requirement.  Other banks have traditionally set their equity contributions at 20% and more recently 30%.  These equity rates have certainly contributed to the reduction in home loan applications. With the standard of living having increased exponentially over the years, buying a home has remained a dream for the average working class.

How much should be saved for the 10% equity depends on the purchase price of the property plus costs.  Take for example the property below at Edai Town for K268,000 as advertised on Hausples.com.pg.  Additional fees on top of the purchase price would be somewhere around K20,000 to K30,000 which should cover legal fees, valuation, insurance and other miscellaneous costs.  If the total costs come to K300,000 that you’d be looking at K30,000 to put up front.

So how and where do you get the K30,000?

If you have been saving on a regular basis then your personal savings should provide you a starting point. We say starting point because you may not have the full K30,000 saved and will require additional funds to bump it up.

But as we all know, saving under current living conditions in Papua New Guinea can be near impossible.  Not just because the cost of living has increased, but given the communal way in which Papua New Guineans live, there is often expenses that look unnecessary but nevertheless spent on.

If you have saved through a savings and loans society than that could be another avenue in which you could draw your funds to make up the equity contributions.  One of the reasons why savings and loans funds are important is that most of the savings that go towards these societies are not taxed or at minimal rates.  This adds extra Kina to your savings and saves you from paying tax which is effectively another expense in itself.

Your superannuation is normally fully withdrawn on retirement or in some cases resignation.  If you have worked for a considerably long time, then it is possible that you would have accumulated a significant amount of saved funds.  With interest added over time, your current balance could be a lot more healthier than you think.  If you are a NASFUND contributor, you can find out your latest balance by texting *627 followed by your membership number and date of birth. You should receive a text message from NASFUND within seconds.

Banks like Bank South Pacific have traditionally accepted superannuation funds as deposits/equity and logically this new home loan product may be no different.  But it’s worth confirming with BSP first.  Who knows you may already have sufficient super savings to meet the 10% deposit you could start hunting for a property.  You could start hunting at Hausples.com.pg.

The last avenue we’d like to discuss is Housing Variation from the Internal Revenue Commission. This isn’t an avenue like the other three above but is more a strategy you can implement or consider now to save. You will need to speak to the IRC about this but basically the Housing Variation enables you pay a much lower tax rate on an approved amount categorized as your “Housing Allowance”. This might be the amount you pay for your rent if you are renting or if you already have a home and are repaying the loan.  So if you sought from the IRC for a housing variation of K500 per fortnight and got approval for that amount, your fortnightly salary would be taxed differently in that the amount would be lower than if you were taxed on the full K500. It can be a bit complicated but it’s an avenue you should look at and speak to your HR officer and the IRC www.irc.gov.pg.

There are many other ways you can save to reach your deposit but the above are just some of the ones we can think of.

Finally, saving requires discipline if you are ever going to reach your goal whether it be the 10%  deposit, 20% or whatever the financial goal you have set.

Speak to people who have done, they may give you more information based on their own experiences.  This is just our opinion but do seek professional advice.

Happy saving!

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